Advice from Nashville's Financial Guru Dave Ramsey

Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
11/9/2004

What do you do with a customer who refuses to pay?

Dear Dave,

I’ve got my own business. I’ve been very fortunate with everybody paying me mostly on time. However, I have one customer in Virginia to whom I’ve sold about $12,000 worth of product and he has not paid me yet. He had excellent references when I started doing business with him. He tells me his customers haven’t paid him, so he can’t pay me. This goes back to August of last year. I’ve called a couple of collection agencies and allowed them to go after him, but they’ve also been unsuccessful at collecting from him. Both agencies recommended I take legal action, but I’m really trying to avoid that, if at all possible. I’ve tried calling him to discuss this, but he just calls back and talks to my answering machine at night.

I really don’t want to throw good money after bad. Should I leave this on the books? How do I know if it’s worth chasing $12,000?

David in Houston, TX



Dear David,

I would probably do a couple of things. First of all, I’d re-examine my business model. I tell my team that if we have a collections problem, it’s not a collections problem – it’s a sales problem. What I mean is that we shouldn’t have made the sale in the first place or we should have sold it under different terms. So one of the things you can learn from this experience is to ask yourself what you could do different, as a policy, to avoid this kind of situation in the future.

Secondly, I think I’d be really persistent on the telephone with this guy. You’re half-way across the United States from him, so that’s your least expensive, best option of contact. Keep at him until you get him on the phone. Once you get hold of him, let him know that you’re a small business guy just like him and ask him what he would do in your position. Explain to him that $12,000 is a lot of money to you. Ask him if he has something he can give you in trade for the debt. Is there a portion of his business, his equipment or inventory that you could take to make this right? Let him know you’ll work with him on this and you don’t want to shut him down, but if he thinks he’s just going to walk away from this and thumb his nose at you, he’s wrong.

Forget the collection agencies. You’ll never get all of your money through them. I would personally make the phone call and work a deal with this guy or make the decision, if you have the assets, to hire a skilled attorney to go take something from this customer to settle the debt. A lot of times, as you’ve said, it’s throwing good money after bad.
Dave

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